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Brexit Report: Free Trade Agreement

February 2021

No-Deal Brexit has been avoided. On Christmas Eve 2020, the UK and the EU struck a last-minute trade agreement to avoid disruptions threatening to prolong the pandemic-driven economic downturn affecting both the EU and the UK. Despite the two blocs agreeing to a deal, future risks remain. The absence of a transition period after the deal was signed means that disruptions could not be completely avoided. In the years ahead, EU-UK trade will continue to be at the centre of discussion.

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Key Findings

The UK economy declined by double digits in 2020

The UK economy is expected to contract by 11.3% in real terms in 2020 (much deeper than the 4.2% contraction in the 2008-2009 recession). The economy will start to recover in 2021, with real GDP growing by around 4.0% in the most likely pandemic scenario. With a free trade agreement signed, the uncertainty surrounding the country subsided considerably which could boost investments once the pandemic slows.

London’s position as a premier financial services centre is under threat

The FTA between the UK and the EU did not include tariff-free cross-border exports of financial services between the two parties. This has now become a perk solely enjoyed by the remaining 27 EU members, threatening London’s dominance.

UK’s bottom segment by wealth to expand considerably in the next five years

Between 2019 and 2024, the number of adults with net wealth of less than USD20,000 is expected to rise by 15.9%, but their mean wealth is set to fall by 15.1% in real terms to USD2,954 per capita in 2024. The expansion of the population at the bottom of the UK wealth distribution is a direct consequence of the decline of the middle segment, as people exit the middle segment to enter the bottom wealth segment.

New regulation for goods causes confusion and disruption for businesses

Large retailers, such as John Lewis, have halted sales to Northern Ireland over confusion, to become compliant with the new regulations, while MAC Cosmetics UK has warned of customs delays in Ireland. With large businesses struggling to align with the latest regulations, it is likely smaller businesses will have fewer resources to navigate the 12-month grace period, limiting these players’ exports to the EU.


Key events so far: Brexit free trade agreement signed
The road ahead: potential disagreement points remain
Key findings

UK Economic Outlook

Baseline outlook
Post-Brexit migration to have mixed impacts on labour market
Wealthy Brits set to become wealthier
Low-income consumers to rise in importance
Loss of Passporting will reduce London's financial dominance
EU could spread out financial services across key Eurozone cities

Impact on Consumer Markets

Packaged Food: retail prices likely to rise despite FTA
Beauty and Personal Care: increased bureaucracy
Soft Drinks: additional paperwork but no effect on costs and prices
Hot Drinks: EU-UK organic equivalence benefits hot beverages
Home Care: Brexit adds to economic headwinds
Tissue and Hygiene: supply chain evaluation key for the industry
Alcoholic Drinks: wine importers struggle with bureaucratic burdens
A reduced global role for UK alcoholic drinks?
Travel: limited Brexit impact on COVID-19 hit travel
Return of duty free may help improve connectivity


Key insights: free trade agreement between the UK and the EU


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